It looks like the Sandy-battered Northeast is about to be battered again – by the combination of the late-night New Years’ Eve Senate tax bill and the Obamacare taxes which go into effect in 2013.
The 2 percent payroll tax increase means that about 80 percent of taxpayers will pay more than last year.
In addition, Obamacare’s billions of dollars of new taxes on pharmaceutical companies, health insurers and medical device manufacturers (including a 2.3 percent excise tax on medical devices) also go into effect. This means that, starting this week, almost all of us – not just the top 1 or 2 percent – will face higher costs every time we need to take a prescription drug, or have a pacemaker implanted, use crutches, or buy health insurance, to name a few. And we are now just one year away from the 2014 start of Obamacare’s employer penalties, which will penalize employers and depress wages.
In addition, the newly effective Obamacare tax increases which affect all of us includes making it almost impossible to obtain a medical expense deduction by raising the threshold for taking such deductions to 10 percent and limits on flexible spending accounts.
In short, Obamacare violated Obama’s promises to not raise taxes on middle-class taxpayers earning less than $250,000. Yet, nothing has been done about this.
This week’s Senate bill and Obamacare place other additional tax burdens on people who earn far less that the so-called $400,000 and $450,000 “compromise” threshold. Obamacare taxes that go into effect today include an additional 3.8 percent on investment income on individuals earning over $200,000 and couples earning over $250,000, plus an additional 0.9 percent of Medicare taxes, a total of 2.45 percent.
The combination of Obamacare taxes and the Senate tax bill means that capital gains taxes will increase from 15 percent to 18.8 percent on individuals earning over $200,000 ($250K for couples), and will increase from 15 percent to 23.8 percent on individuals earning over $400,000 ($450K for couples). This will severely depress investment in the United States at a time when investment is sorely needed to created jobs.
Moreover, $400K (for individuals) and $450K (for couples) are not the real thresholds for the federal tax increases in the Senate bill. “Phaseouts” (elimination) of deductions and of the $3,800 per person personal exemption start at $250,000. Eliminating deductions and exemptions is in effect another tax increase. The deductions that will be lost by far-from-rich taxpayers include the deductions for state and local income taxes and property taxes. Because New Yorkers – including people in our community – have such high property taxes and state income taxes, the Senate deal is a double whammy for people in New York and other high-tax states. New York’s high property and income taxes have led to New York losing population to lower tax states over the past few decades. The $250Kers loss of federal tax deductions for their high state and local taxes will cause even more of the most productive New Yorkers to flee from New York State.
Due to cost of living differentials, New Yorkers are pushed into higher brackets than persons who have the same standard of living elsewhere in the country. Thus, under the previous federal tax system, New Yorkers sent $1.00 to the U.S. government for every 79 cents New York received back; while lower cost-of-living states received $2 for every $1 they sent to the federal government. The recent legislation will make the outflow from New York even worse.
It’s sad that our New York Democratic representatives did nothing about the legislation’s harmful impact on our state.
Another problem that the new legislation fails to address is the issue of people who earn variable incomes from year to year. Many people with volatile incomes will end up paying top-income tax rates, extra Obamacare taxes, or losing federal tax deductions, even though their average real income is modest. For example, an inventor or author or artist may earn nothing for four years while working on his or her invention, book or masterpiece, and then earn $225,000 in the fifth year when he completes and sells his invention or book or painting. Although the inventor or author or artist’s gross income really amounts to only $45,000 per year, under the Obamacare tax scheme, he or she will pay Obamacare taxes at the rate of the so-called “rich.”
Many others fall into the same boat – a lawyer who spends years working without pay on a contingency case which is finally resolved after years of court battles; a salesperson who works on an account for years until it finally comes through, a businessman whose business is down one year and does better the next, an actor who spends two years going on auditions for each year that he has a part in a play, and any worker who gets bonuses or has variable pay. The Internal Revenue Code used to have something called “income averaging” which allowed such people to spread their income out over several years – but that protection was eliminated (except for certain farmers and fisherman). And the new steeply progressive Obama tax rate structure will worsen the already-difficult financial circumstances of people with irregular income.
And of course, the real problem – namely, runaway federal spending – was not addressed at all by the Senate bill. All the tax increases were spent (in the form of transfers in the Senate bill). Thus the new legislation does absolutely nothing to reduce the federal deficit. We now need to finally seriously start the task of reducing federal spending.
Liz Berney
Great Neck
